Evidence of meeting #32 for Industry, Science and Technology in the 40th Parliament, 2nd Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was nortel.
A recording is available from Parliament.
12:35 p.m.
Conservative
The Chair Conservative Michael Chong
Thank you very much, Mr. Henderson.
Merci, Monsieur Bouchard.
We're now going to Mr. Lake.
12:35 p.m.
Conservative
Mike Lake Conservative Edmonton—Mill Woods—Beaumont, AB
Thank you for coming before the committee today.
I'm just taking a look at your opening statement. Obviously you've talked a lot about the benefits this deal will have for Canadians. In particular, I note here that you've said you see this acquisition as an opportunity to continue the tradition of excellence in innovation, with Canadian technology jobs being preserved and ultimately more being created.
Can you speak to the part about more being created, where you see that coming in this picture?
12:40 p.m.
President and Chief Executive Officer, Ericsson Canada Inc.
I think it's a matter of scale. Ericsson has many large R and D centres around the world. It happens that the facility in Montreal is one of our largest. However, R and D and these centres compete with each other for assignments. As technology is standardized, licensed, and starts to be developed, depending on the competence, the quality of the facilities, the way the innovation is produced, Ericsson globally assigns R and D projects out to the these centres.
We fight very hard here in Canada to make sure that from a cost perspective we are competitive with other R and D centres around the world, and I would say that federal and provincial tax credit programs really help us grow those R and D jobs and maintain those jobs here in Canada.
But as we start to add competence like this, competence that really has to do with long-term evolution.... Ericsson already is spending an enormous amount of money on long-term evolution; I think we are the leaders in developing that technology. This is an added part of the portfolio that we've put in place, but it makes research and development and the work we'll do here in Canada even more important, so that draws additional assignments, additional resources, additional work into Canada.
That's what I meant by growing that.
12:40 p.m.
Conservative
Mike Lake Conservative Edmonton—Mill Woods—Beaumont, AB
You mentioned university partnerships in answer to one of the questions from a colleague here. Canada leads the pack, I think, in terms of university research, but we've had some challenges commercializing that research. I'm interested to hear a little bit more elaboration in terms of your partnerships with universities that you were talking about.
August 7th, 2009 / 12:40 p.m.
Michel Peladeau Director of Finance, Ericsson Canada Inc.
I might be able to answer that one.
12:40 p.m.
President and Chief Executive Officer, Ericsson Canada Inc.
I'll let Mr. Peladeau answer that one.
12:40 p.m.
Director of Finance, Ericsson Canada Inc.
For university research, Ericsson in Canada has been very active. We're investing in the University of British Columbia; we have invested some money with Waterloo University in Ontario, and the University of Montreal, the Polytechnique. We have some chairs we're funding at Polytechnique or Concordia, if I'm not wrong, and we're also funding different projects with the help of Prompt Inc. in Quebec. So we have many initiatives and we're investing a lot of money with universities in Quebec and across Canada.
12:40 p.m.
Conservative
Mike Lake Conservative Edmonton—Mill Woods—Beaumont, AB
I'm going in a few different directions here because I want to get a full picture of your presence in Canada.
You touched on the Rogers network. Can you elaborate a little bit more in terms of your long-term relationship with Rogers and your involvement in that network?
12:40 p.m.
President and Chief Executive Officer, Ericsson Canada Inc.
You know, when I said in my opening statement that Ericsson started in 1953, obviously that wasn't with Rogers. I mean, in the sixties and seventies the company was involved in a number of businesses, including telephony switches that carried toll traffic internationally; it put in power cables below the sea to link P.E.I. to the mainland; it installed horizon-based radar systems on the frigates for the Canadian navy.
But in 1984, when the first wireless licences were handed out in Canada, that's when we struck this partnership with Cantel, at that time, to deploy that network 100% coast to coast. That has been a fantastic story for Ericsson. That's a relationship that exists to this day, 25 years later. We know that the innovation and the technology that comes to market through that network makes it one of the leading telecom providers in this country, and we are its sole partner when it comes to the wireless network equipment.
If I could tie that together even more, there are a couple of things I think I have to say.
In 1989 there was another network put in coast to coast for Rogers. It was called Mobitex. It was a very early mobile data technology. It was totally developed by Ericsson, it was sold to Rogers, and we put it in coast to coast. And there was also a coast-to-coast network put in the U.S. That Mobitex network, that technology, is the one that the very first RIM pagers were built upon. The first little chicklet, I mean, was completely Mobitex technology. So there's quite a technological tie between not only Rogers but Research In Motion and some of the things that have happened in this country.
In 1984, when the licences were handed out, it was also decided to put in an innovation cell in Montreal. It really started with about 45 to 50 people, and really, on the start of that partnership, it has become one of the top research and development companies in the country.
So we're very proud of what has been accomplished here and we're quite proud of our relationship with Rogers over these 25 years.
12:45 p.m.
Conservative
Mike Lake Conservative Edmonton—Mill Woods—Beaumont, AB
I have a final quick question here with regard to the number of Canadians you employ. You went through the numbers, but what number or what percentage of those would be actual R-and-D-focused employees versus other areas?
12:45 p.m.
President and Chief Executive Officer, Ericsson Canada Inc.
In Vancouver, we have about 190 people in research and development. Again, that was an acquisition—a U.S. acquisition—that Ericsson made, but the research and development is being conducted in British Columbia out of that innovation cell.
In Mississauga, it is mostly the sales and marketing, terrestrial engineering, and project management. There are a couple of hundred people there, or a little bit less.
And then regarding the components in Montreal, I'll let Mr. Peladeau answer in French.
12:45 p.m.
Director of Finance, Ericsson Canada Inc.
In Montreal, we have approximately 1,500 employees. The distribution is approximately 600 employees in research and development and about 700 in a services group. Other employees will be added as a result of the acquisition, as Mr. Henderson said, approximately 180 of which will be in a research group in Vancouver.
12:45 p.m.
NDP
Brian Masse NDP Windsor West, ON
Thank you, Mr. Chair.
Thank you, gentlemen, for appearing today.
To follow up from that, are those specific numbers for people that involve specifically engineers in field research, not service?
12:45 p.m.
President and Chief Executive Officer, Ericsson Canada Inc.
The splits in Montreal?
12:45 p.m.
NDP
Brian Masse NDP Windsor West, ON
Yes, in your numbers, in terms of your engineers who are employed across Canada, how many are actually doing real field research versus service?
12:45 p.m.
Director of Finance, Ericsson Canada Inc.
It's mainly the field research, our service group, that does that in large part. That's what we call on-site customer support. They also do FOAs, first office applications—I don't know the expression in French. These are people who go on site. As I mentioned, a group of about 700 employees do service. It's not the entire group that does field research, but a large number do.
12:45 p.m.
NDP
Brian Masse NDP Windsor West, ON
That's different from hard research, but I understand that.... Here's what I want to get to right away, though, and I think it's important. I know that you noted in your submission here that the book value is less than what you're purchasing it for. Maybe just explain to the public, you know, why it is that you're paying $1.3 billion for something Nortel claims is only worth $149 million.
12:45 p.m.
President and Chief Executive Officer, Ericsson Canada Inc.
First of all, I'll make one comment. In acquisitions of this nature in the technology field, it's quite common to see purchase prices and book value vary by a factor of 10. I would say that's quite a common practice. I think we have to remember that although the book value assets are calculated the way they are, we heard commentary today that there's a lot of other intrinsic value that's put behind those, including the existing CDMA business, that entire customer base. Even if it's a maturing technology, it represents an opportunity for growth, not only now but for bringing new technological solutions to that customer base.
I think we also have to remember that the first stalking horse bid was already at $650 million, so it was a competitive bidding process. The parties walked into that room and they walked the price up. If the goal is for Nortel to redeem the value for the stakeholders and really get the maximum out of this, they did a good job that day, but we felt that this is the value we put on this business.
12:45 p.m.
NDP
Brian Masse NDP Windsor West, ON
That's why I think it's a little bit difficult. The Investment Canada Act actually has enterprise value right now as the threshold. It's $312 million right now and it hasn't been changed to date.
Let me make sure I understand how this arrangement will work, because it came a little more to light today that Nortel is leasing this to you. For how many years, or is it permanent? I guess the way it works now is that if you're RIM or somebody else, then either you've got to purchase the actual right from Nortel, if it's later on auctioned off, and then you have to get a release from them now and they get access to that equipment, or the LTE, or maybe they don't. Alternatively, then, RIM and everybody else has to go to you to get access to this LTE technology. Lastly, who's going to do the subsequent research on that? Is Nortel abandoning all that? Or do you then do the subsequent research and then have rights to all that's developed off the subsequent research that has been done on LTE?
12:50 p.m.
President and Chief Executive Officer, Ericsson Canada Inc.
I'll make a couple of comments, first on the Investment Canada Act. I believe, because this is a sale of assets and there is no enterprise, that it's not explainable under that part of the act either. But I'm not counsel--
12:50 p.m.
A voice
That is the case.
12:50 p.m.
President and Chief Executive Officer, Ericsson Canada Inc.
When it comes to patents, it's a very good question: how long is the term of the lease of the patent? I said earlier I think it's perpetual, but I could be wrong. Maybe Richard could address that.
12:50 p.m.
Richard Corley Legal Counsel, Ericsson Canada Inc.
It's very important to understand that with a licence to technology, unlike a lease on a house, the fact that one person has a non-exclusive licence doesn't preclude another person from using that same asset. The fact that Ericsson has a non-exclusive licence, by its nature, means that RIM can have the same non-exclusive licence.